All Forum Posts by: Mike V.

It's been a while since my last post so I thought i'd post an update on how things have been going for me in Kauai.  In the last 6 months i've acquired two more short term rentals in the Poipu Beach area and completed a 1031 exchange. Both were off market deals.  The rental market is still extremely hot and prices are high with inventory low, but I have still been managing to cash flow on the new purchases.     

Purchase 1: 3 bedroom 3 bath condo in a *luxury* complex. Paid 1.85m with about 1m down. (I sold a unit that I purchased for 485k about 10 years ago for 1.7m and did a 1031 exchange and used a little on the second unit) Total carrying costs of approx. $8450 a month. Kauai is a high occupancy area and I average 95% occupancy among my units. With this occupancy rate, I will average $18,500 a month in rent netting around 10k a month. At 120k profit per year, that's about a 12% CoC ROI. This is typically lower than I aim for but using the proceeds from a 1031 that had massive equity, and given the desirability of this complex, I made an exception. Another unit in this complex just sold for 2.2m. Up $350k in equity based on that comp.

Purchase 2: A 3 bedroom, 3 bath house a short walk to Poipu Beach. Super cool location on a half acre lot. Paid $2,150,000 which was about $350,000 under market rate. I put down ~40% using the remaining 1031 proceeds and some savings and have a ~$11,000 mortgage but only a 300 HOA fee with misc bills etc around $1000 a month. All in carrying cost ~$12,500 a month. House was in rough shape and required an extensive renovation. I put in ~$500,000 in repairs, upgrades, furniture, etc and converted to a 4 bedroom. This property will net ~$27,500 a month leaving a profit of ~$15,000 a month. At $180,000 profit per year, this one will be a 13% CoC ROI. Again, a bit low but I can resell this unit post renovation for ~$3,200,000 so it is up about $550,000 in equity in the 6 months I have owned it. The renovation finishes in ~2 weeks. Maybe i'll make a separate post on that process if there's interest.

My other units continue to do very well with steady rate increases over the last few years. I have enjoyed MASSIVE appreciation with great CoC returns and will continue to purchase as deals are found. I self manage all of my units using my team of connections on Kauai to keep overhead lower. Its been a busy but productive year for me. I'm heading back in two weeks to finish setting up the remodeled unit so if anyone else is on island would be happy to chat then. In addition to the returns, I get to enjoy writing off all my (and family) trips as work expenses as well. Kauai is an expensive market with high overhead but I have 15+ years of solid returns so ignore those who say its an impossible market. They're just doing it wrong. :)

Your numbers for Kauai are off. 

 25% down is impossible to cash-flow.
HOA is actually not that expensive, it's still reasonable, and actually it's less expensive than owning SF in paradise.

The problem is there's high GE/TAT 14% and PM management 20-25% that you need to account for as well.

In todays market finding a place to cash flow in Kauai with 25% down is challenging but not 'impossible'.  I can see several that cash flow 'today' on MLS, but the returns I require to purchase are no where to be found in Kauai.  With the exception of a few land lease units available but I wont touch those.  As an example:  As a landlease you can get a unit in Kiahuna Plantation on Poipu Beach for under 300k.  Rent it pretty easy at 300. /night with a few upgrades, carrying costs about 40k plus mortgage and you can see what youd net for yourself.  

GE/TAT is a passthrough so thats a non issue.

You should self manage or find a 'co host'.  You don't need a full service PM. 

Kauai has, and continues to be a gold mine for my rentals.  Discouraging others from investing in the state is disingenuous.  The biggest issue with investing in HI isnt the returns, its the large down payment needed on high cost properties with very high carrying costs that price out the 'average' investor.     

Quote from @John Underwood:

Quote from @Mark Waite:

@John Underwood please don't make blanket statements like you did unless you fully understand the STR markets in Hawaii. Your comment is actually way off base.

@Mike Morehead, there are other options beyond using Hawaii based lenders. There are situations where the property you are looking at may necessitate the use of a local lender, such as for a leasehold property. But there are other options out there. And anyone who says they work with investors should have those options in their back pocket. Let’s connect off line and I can make some introductions.

So your saying there are no STR requirements in any of Hawaii? My bad I didn't think that was the case.

 I think he takes issue with the ‘hefty regulations’ comment.  

You are correct, there are strict regulations. However, there are designated areas where all the red tape disappears and it’s basically a free for all. As long as you are within one of the hose designated visitor areas you are fine and will never be bothered. If you are not, you will inevitably have issues. 

At least this is how it works in Kauai.

Quote from @Ashton Magdos:

I am also interested in getting a vacation rental in Kauai. My wife and I have visited at least 5 times in the past decade and have always thought to obtain a rental there. I have never invested in a property outside of the city i live and would love to hear about anyones personal experience buying a rental in Hawaii. Specific questions, what occupancy rate can one expect on short term rentals? How to use hard or private money for down payment, and if anyone knows an agent in Kauai or Maui that i could reach out to? 

Kauai is my specialty. I own and self manage multiple units and help a few others manage theirs. I cannot help with financing, as I am not a lender but if you have questions about an area, complex or costs associated with owning and running a rental shoot me a PM.  

Quote from @Michael Baum:

That's what I am talkin' about @Mark Waite. Thanks for the clarity. We started looking in various areas in Hawaii, but no matter what, I never found one that looks great. The pandemic rules in HI were among the most restrictive so I am glad we didn't put any $$$ there. 

You should have purchased.  My rentals in Kauai have easily 2x'd since covid hit.  Its counterintuitive but wealthy work from home techies used Kauai as an escape from Californias draconian lockdowns and purchased all the inventory at insanely high prices. Now comps are through the roof and if you add in the recession and state of the economy and a lot of wealthy people are paying top dollar to move their assets to luxury real estate.  

Even if you had to float your payments during the lockdowns youd be waaaaaaay up today.  And you could have done what I did, and enjoy the beaches in Kauai basically to yourself while enjoying the down time.

They are up more significantly more than 50%. I purchased my last rental there for 650k and it’s now worth almost double a year later. Unless you’re buying a land lease unit there’s almost zero inventory in the VDA zone at under 600k. 

Additionally, there is a well known wealthy individual who has purchased over 20 units in the last year all in the VDA zone and all at stupid high prices. 

For perspective, a few years ago a unit I purchased for 550k is now with 1.6m.  

I actively invest in Kauai. I own and self manage several short term rentals there and make a fantastic ROI. STRs are a bit more work but they're cash cows.

@Luke Carl I know you’re not a fan of OwnerRez but I recently connected to their API and all bookings are handled through OR. I was told at the time of booking both Airbnb and vrbo api pull the data from OR making this impossible. The new Airbnb api works fantastic and allows me to message in Airbnb through OR. All communication, payments etc push through OR and there’s really no reason for me to ever log into either. I didn’t think I could love ownerrez more but they found a way.